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Productivity and GlobalizationProductivity and Globalization
Eric BartelsmanEric BartelsmanVrije Universiteit Amsterdam and Tinbergen InstituteVrije Universiteit Amsterdam and Tinbergen Institute
EPC 2006EPC 2006, , HelsinkiHelsinkiAugust 31,August 31, 200 20066
This work is partially funded by the European Commission, Research Directorate This work is partially funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and General as part of the 6th Framework Programme, Priority 8, "Policy Support and
Anticipating Scientific and Technological Needs".Anticipating Scientific and Technological Needs".
OverviewOverview
IntroductionIntroduction
Understanding ProductivityUnderstanding Productivity
Recent FindingsRecent Findings
IntroductionIntroduction
Why are we hereWhy are we here
What is GlobalizationWhat is Globalization
What is ProductivityWhat is Productivity
Why are we here?Why are we here?
Trade and IndustryTrade and Industry Your job, your futureYour job, your future Threats and opportunitiesThreats and opportunities
Policy makersPolicy makers Politics of globalizationPolitics of globalization Innovation policyInnovation policy Framework/LisbonFramework/Lisbon
Research communityResearch community Fun new results?Fun new results?
What is Globalization?What is Globalization?
IncreasingIncreasing intensity intensity of international ‘interactions’ of international ‘interactions’Goods, servicesGoods, servicesCapital, laborCapital, labor(Culture, Value Systems)(Culture, Value Systems)
Relentless turmoil brought on by owners of capital in Relentless turmoil brought on by owners of capital in order to increase profits by circumventing rules of order to increase profits by circumventing rules of law and decencylaw and decency
source: Axel Dreher, 2006
Globalization Intensity(Trade, FDI, portfolio, factor payments)
0.00
0.50
1.00
1.50
2.00
1970 1975 1980 1985 1990 1995 2000 2005
rela
tive
to
GD
P
FIN NLD USA DEU
7
Globalization of Goods and Service FlowsGlobalization of Goods and Service Flows
Economic EnvironmentEconomic Environment– WagesWages
– Infrastruction (phys/legal)Infrastruction (phys/legal)
– RegulationRegulation Transportation CostsTransportation Costs
– Bulk/valueBulk/value
– ObsolescenceObsolescence
– Time sensitivityTime sensitivity
Transaction costsTransaction costs– ‘‘Coaseian’ span of controlCoaseian’ span of control
– Market structureMarket structure
– Reputational issuesReputational issues
Location DecisionLocation Decision
Control DecisionControl Decision
Con
trol
Con
trol
LocationLocation
Mar
ket
Mar
ket
Wit
hin
Fir
mW
ithi
n F
irm
DomesticDomestic GlobalGlobal
Domestic Domestic outsourcingoutsourcing
Shared Shared servicesservices
Captive Captive GlobalizationGlobalization
Global Global outsourcingoutsourcing
Specialization Intl’ Trade
FDIOffshoring
source: derived from MGI 2005
What is Productivity?What is Productivity?
Output per unit of inputOutput per unit of inputE.g. GDP per hour workedE.g. GDP per hour workedReal quality adjusted production per unit of aggregate Real quality adjusted production per unit of aggregate
input (KLEMS)input (KLEMS)
Increases in productivity are bound only by our own Increases in productivity are bound only by our own imaginationimagination
…….subject to optimal accumulation of physical and .subject to optimal accumulation of physical and human capital and hard resource constraintshuman capital and hard resource constraints
Productivity improvements may ‘buy’ goods, leisure, Productivity improvements may ‘buy’ goods, leisure, environment etc…environment etc…
Long run productivity growthLong run productivity growth
CommodityCommodity Time to earn Time to earn 1885 (hours)1885 (hours)
Time to earn Time to earn 2000 (hours)2000 (hours)
Productivity Productivity multiplemultiple
1-speed 1-speed BicycleBicycle
260260 7.27.2 36.136.1
Office chairOffice chair 2424 2.02.0 12.012.0
Hair brushHair brush 1616 2.02.0 8.08.0
Silver SpoonSilver Spoon 2626 34.034.0 0.80.8
Source: Brad DeLong, 1991-2000
Growth rate
2004-2000
Sectoral growth contribution
2004-2000
Sectoral contribution to acceleration
2004-2000 vs 2000-1995
Sectoral Production
TFP ICT TFP ICT
Non-farm Private Business
2.3 2.3 0.5 1.2 -0.6
Non High-Tech 2.0 1.7 0.4 1.4 -0.4
Manufacturing 0.6 0.4 0.0 0.3 -0.1
Construction 0.9 0.0 0.0 0.1 0.0
Distr and Trade 3.1 0.7 0.1 0.0 -0,1
FIRE 2.8 0.6 0.2 0.8 -0.2
Pers. Services 2.1 0.0 0.0 0.2 0.0
High-tech 3.2 0.6 0.0 -0.2 -0.2
Source: Corrado, Lengermann, Bartelsman, Beaulieu; 2006
Growth Accounting – USA
Unanswered questionsUnanswered questions
Why has ICT-capital not contributed as much in EU?Why has ICT-capital not contributed as much in EU? Why do EU firms invest less in ICT Why do EU firms invest less in ICT Does ICT contribution depend on characteristics of firms?Does ICT contribution depend on characteristics of firms?
Why is US TFP growth now broad based.Why is US TFP growth now broad based. Is TFP growth high in all firms?Is TFP growth high in all firms? Does it depend on firm characteristic?Does it depend on firm characteristic?
OverviewOverview
IntroductionIntroduction
Understanding ProductivityUnderstanding Productivity
Recent FindingsRecent Findings
Firms matterFirms matter Productivity in industry depends on compositionProductivity in industry depends on composition Could have e.g. long tail problem:Could have e.g. long tail problem:
Global frontier
country2
country1
long tail
•Mean productivity could be bad estimate of frontierMean productivity could be bad estimate of frontier
Firms in the UK and the global frontierFirms in the UK and the global frontier
0.0
5.1
.15
0.0
5.1
.15
0.0
5.1
.15
0.0
5.1
.15
0 2 4 6 0 2 4 6 0 2 4 6
0 2 4 6 0 2 4 6
Aero BasicMetals Chem excl pharm Computers ElectMach
FabMetals FoodTobacco MachEquipNEC MedicalOptical MotorVehicles
Non-metallic mins PaperPubPrint Pham RadioTVComm RubberPlastic
Textiles Wood
Fra
ctio
n
Dgl_froGraphs by stan0label
0
1000
2000
3000
4000
5000
6000
0 20 40 60 80 100 120 140
productivity
freq
uen
cy
Aggregate productivity depends not only on
the distribution of firms within an industry…
0
1000
2000
3000
4000
5000
6000
0 20 40 60 80 100 120 140
productivity
freq
uen
cy
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
firm i
sale
s
…but also on size
Drivers of the productivity frontierDrivers of the productivity frontier
InnovationInnovation R&DR&D Experimentation with business concepts and processesExperimentation with business concepts and processes
Incentives for increased innovationIncentives for increased innovation IPR (but see Boldrin and Levine)IPR (but see Boldrin and Levine) Subsidy to cover wedge social and private returnSubsidy to cover wedge social and private return Availability of ‘innovation inputs’Availability of ‘innovation inputs’ Rapid scale expansion of new goods/services/business concepts. (Because Rapid scale expansion of new goods/services/business concepts. (Because
knowledge and other intangible assets are non-rival in production, return knowledge and other intangible assets are non-rival in production, return goes up)goes up)
Productivity growth below the Productivity growth below the frontierfrontier
Reallocation from low to high productivity Reallocation from low to high productivity firmsfirms– flexibility in product marketsflexibility in product markets– low hiring/firing costslow hiring/firing costs– low entry/exit barrierslow entry/exit barriers
Diffusion of existing technologyDiffusion of existing technology– Market pressureMarket pressure– Human capitalHuman capital– National innovation systemNational innovation system
OverviewOverview
IntroductionIntroduction
Understanding ProductivityUnderstanding Productivity
Recent FindingsRecent Findings
0.0
0.2
0.4
0.6
0.8
Data for Hungary, Indonesia and Romania use Three-Year Differencing.Excluding Brazil and Venezuela.
Five-Year Differencing, Real Gross Output, Manufacturing
The Gap Between Weighted and Un-WeightedLabor Productivity, 1990s
The indirect effect: market contestabilityThe indirect effect: market contestability
-1.0
-0.5
0.0
0.5
1.0
1.5
Incum
bents
' Pro
ductivity G
row
th
0.0 0.5 1.0 1.5Firm Turnover Rate(f)
Note: Excluding Brazil and Venezuela. Outliers Excluded.
Correlation Coefficient: 0.3349***
Five-Year Differencing, Real Gross OutputCountry and Industry Time Averages
Labor Productivity - Pooled Manufacturing
The indirect effect: market contestabilityThe indirect effect: market contestability
-0.5
0.0
0.5
1.0
1.5
Incum
bents
' Pro
ductivity G
row
th
-1.0 -0.5 0.0 0.5 1.0 1.5Net Entry Productivity Growth
Note: Excluding Brazil and Venezuela. Outliers Excluded.
Correlation Coefficient: 0.5800***
Five-Year Differencing, Real Gross OutputCountry and Industry Time Averages
Labor Productivity - Pooled Manufacturing
Productivity growth below the Productivity growth below the frontierfrontier
– Convergence to which frontier? National or Global?Convergence to which frontier? National or Global?
– Bartelsman, Haskel and Martin, 2006Bartelsman, Haskel and Martin, 2006 Both frontiers matterBoth frontiers matter Pull from Global frontier declines with distance to frontierPull from Global frontier declines with distance to frontier Pull from National frontier does notPull from National frontier does not
Baseline resultsBaseline results(1)(1) (2)(2) (3)(3)
DTFDTFNN only only DTFDTF
GG only only DTFDTFNN & DTF & DTF
GG
DTFDTFNN 0.3200.320 0.2110.211
(39.25)(39.25) (8.13)(8.13)
DTFDTFGG 0.2870.287 0.1010.101
(39.66)(39.66) (4.68)(4.68)
RD_salesRD_sales 0.5810.581 0.4580.458 0.5420.542
(1.53)(1.53) (1.20)(1.20) (1.43)(1.43)
MNE DummyMNE Dummy 0.0720.072 0.0720.072 0.0730.073
(15.87)(15.87) (15.76)(15.76) (16.02)(16.02)
ΔAΔAGit-1Git-1 -0.061-0.061 0.1030.103 -0.004-0.004
(1.97)(1.97) (3.31)(3.31) (0.11)(0.11)
ObservationsObservations 2758227582 2758227582 2758227582
R-squaredR-squared 0.180.18 0.180.18 0.180.18
Robust t statistics in parenthesesRobust t statistics in parentheses
Varying Convergence SpeedsVarying Convergence Speeds
DTF top vs botDTF top vs bot
DTFDTFNN 0.2040.204
(7.92)(7.92)
DTFDTFGG _top _top 0.1810.181
(6.62)(6.62)
DTFDTFGG _bot _bot 0.1150.115
(5.30)(5.30)
RD_salesRD_sales 0.5490.549
(1.45)(1.45)
MNE dummyMNE dummy 0.0730.073
(16.00)(16.00)
ΔAΔAGit-Git- 0.0070.007
(0.22)(0.22)
ConclusionsConclusions
Drivers of productivity are different for firms at the Drivers of productivity are different for firms at the ‘technology frontier’ and behind the frontier‘technology frontier’ and behind the frontier
At frontier: leveraging intangible assets matters: At frontier: leveraging intangible assets matters: potential scale is importantpotential scale is important
Inside frontier: Inside frontier: adoption of technology adoption of technology resource reallocationresource reallocation